Investing 102

[XLexusTech]

Anyone have any opinions or even a formula for taking gains or taking losses for tax purposes?

Here is my situation... I have one stock and one municipal both traded in a post tax "Play" account... I am going to share the tickers because it will help ..

I have MUI which is a tax free Muni that can take a loss on.. and trade up for MUS.. I am down 38% on it..
I have COKE that I am up 198% on right now.. which I think is a good time to sell off some of it..

Is there a way to calculate how much of each would offset? Assume Coke is not subject to short term gains?

In a nutshell, is there any offset losses and gains strategies to help come april 15th?

[CRCRFT78]

FINALLY I have caught up with this thread again after slacking off. After watching the market take some serious hits I realized I needed to get back on board with what I have going on and put some idle (LAZY) workers back to work.

I have about $3800 in my retirement account and have been considering purchasing ATT (T) with that or adding to my two red positions. CAT is -12.80% and KMI is -28.34%. The rest of the account is doing pretty good.

Do you think it would be wise to spend it all on ATT, add to the 2 in the red or divide it between the three of them? I've included a screenshot of my holdings for your critique.

[XLexusTech]

Jose I am not qualified to answer your question... But congrats on them gains !

[GregWeld]

Originally Posted by CRCRFT78

FINALLY I have caught up with this thread again after slacking off. After watching the market take some serious hits I realized I needed to get back on board with what I have going on and put some idle (LAZY) workers back to work.

I have about $3800 in my retirement account and have been considering purchasing ATT (T) with that or adding to my two red positions. CAT is -12.80% and KMI is -28.34%. The rest of the account is doing pretty good.

Do you think it would be wise to spend it all on ATT, add to the 2 in the red or divide it between the three of them? I've included a screenshot of my holdings for your critique.

Always hardest to put money into the bleeders... but that's what you do if you still think the company is solid - that the dividend is solid - and if you believe the share price is down for some reason other than the company is going to hell. Remember that if you simply bought the same amount of shares that you have - it's only going to cut your loss a little. That would be called "doubling down".

In your case - let's take KMI:

You have 31 shares @ $41.35 per share cost basis. So if you bought 31 more shares at todays price of $29.63 --- your new cost basis would be 62 shares @ $35.49 per share. That is closer to where it's trading - but not really close enough for "me"... If it was me I'd want to get my share price down to maybe $32 ish. That way it has less to recover before I'm made whole - or I take a loss and turn it into a gain. So I might buy 100 shares of it. Your position would then be 131 shares @ $32.47

That is painful to do - takes this position to "out of whack" with the 5% rule -- but rules are made to be broken IF you think of this as a TEMPORARY position that is a bit of a gamble = in a effort to get you back to even.

KMI moved down with oil - yet it's their pipes that move oil... regardless of the price of oil - a person that owns the crude has to move it to sell it - that uses KMI's pipes... the consumption of oil is not the problem - the oversupply of it is. Regardless - if you have too much supply - you might have to store that - and that means you have to move it to a storage facility etc.

If oil comes back just a little... KMI will move with it. In the meantime you're collecting 6.6% dividend... which is just huge. And you have more upside potential here than you do down - unless oil goes to $35 or $20... which is something we just don't know. Oil seems to be floating right around the $40 level here for some time... and the oil rig count is on the decline - which helps with the oversupply... and blah blah blah.

So it would cost you $2900 of your $3800 available. I'd hold the remaining grand and build back some more cash. Cash is always nice - and the more volatile the market the more comfort you'll get from holding some cash. If you really want to do some math - you'd take the 6.6% dividend you're making on the new KMI purchase - and spread that over the $3800 (if you want to look at it that way) and you'd be making about 5% on that - which is a good return! Even though a grand is sitting idle.

Mind you -- this strategy doesn't always work!! Share prices can fall further - giving you an even larger loss (because you'd be holding even more shares!) - but when this strategy works -- it works really really well!

As soon as the share price approached or exceeded the new cost basis.... I'd sell the original 31 shares (you can do this - as you can identify which shares should be sold) leaving you with the 100 shares at your $29 purchase price... and then your gains can start from that new lower cost basis. I'd then use that money plus any new cash and the remaining cash you had and figure out what to do with that... when you're ready.

Ask more detail if you don't understand the strategy. If you're nervous about this strategy - then let's discuss a different move.

I'm focusing on KMI rather than CAT because the CAT isn't that much of a loss - and it can recover that distance pretty quickly on it's own... if we see China and Europe recover a bit... I wouldn't chase that here. The KMI has the big reward component if oil recovers just a bit - and the dividend on it is fantastic down here!

[CRCRFT78]

Thank you for the insight Greg. I didn't think to look at it from that perspective because the bleeders don't scare me into making any irrational decisions (buying high selling low). I'm in this for the long haul and given my time line I believe KMI & CAT will/should recover. One reason why I was considering buying ATT to add to my positions.

Just to make sure I'm understanding what your explaining to me. Buying shares at a lower cost per share will bring my average cost per share down which should help speed up my recovery IF the stock price rises and does not decline further because now the gap has become smaller between my losses and breaking even. Selling the long-term shares of KMI will eliminate the higher cost per share keeping the new shares at the lower cost basis allowing my gains to become more substantial IF the share price rises by not having to make up as much ground to recover.

I think I just repeated what you said but I need to make sure I'm understanding it.

[WSSix]

Jose congrats on the nice portfolio! I'd personally split the money simply because I don't like putting all my eggs in one basket. I'd definitely go KMI but I'd also put T and CAT in there, too. I'd simply expect a lower return on that money that I put into those two. I think I would invest the majority of the $3800 in KMI and not split it into 3rds. Say 50/25/25 KMI/T/CAT. Tough choices sometimes. I wouldn't sweat it too much whatever you decide so long as you put that money to work.

EDIT: I went back and looked at your screen shot again. I don't think I would buy T now since you don't already own it. I own both T and VZ and if I was starting over, I think I would buy VZ first. Personally, I'm considering adding to my T portion simply because it's down from where I bought it and I'm heavier on VZ so I want to balance my T out now. I'd maybe also look to add to some of your other current holdings. I put money into GIS and HAS right before they jumped a couple months back. They were already doing well, and I just wanted to add to my position as I normally do. I got lucky they jumped the way they did. Point being, in another week, your current price on a particularly stock may look like or be a bargain. Do note that I routinely add money to my account every pay check and typically make purchases once a month. I don't want to stress over my purchases so I simply add to a position as I go through the year without trying to time anything.

[GregWeld]

Originally Posted by CRCRFT78

Thank you for the insight Greg. I didn't think to look at it from that perspective because the bleeders don't scare me into making any irrational decisions (buying high selling low). I'm in this for the long haul and given my time line I believe KMI & CAT will/should recover. One reason why I was considering buying ATT to add to my positions.

Just to make sure I'm understanding what your explaining to me. Buying shares at a lower cost per share will bring my average cost per share down which should help speed up my recovery IF the stock price rises and does not decline further because now the gap has become smaller between my losses and breaking even. Selling the long-term shares of KMI will eliminate the higher cost per share keeping the new shares at the lower cost basis allowing my gains to become more substantial IF the share price rises by not having to make up as much ground to recover.

I think I just repeated what you said but I need to make sure I'm understanding it.

Yes --- you're following perfectly.


This is only one opinion... and you need to follow what YOU want to do. Not what I suggest. I'm just tossing this out here because it's a good subject for Investing 102. Just ways to think about stocks... and we've not been in a period where people are experiencing losses. The market has mostly gone UP since we started this whole thing. So I actually like this new "issue"... and it is a good subject. What to do when things aren't going your way.

[GregWeld]

Trey -- Good points -- and you show a healthy understanding of investing. The focus shouldn't ever be "today" --- or next month. Investing is best done with discipline. Steady, routine... up market or down market. Just keep plugging away.

The harder part comes when people are looking at red... So I think these questions are fantastic. They're gut wrenching. Do you throw more money after bad - is it really bad or is it a longer term opportunity - what's the thought process behind putting more money into losers... etc.

The part I like the best about dividend reinvestment is that it automatically buys shares every quarter - come hell or high water... and over time this automatically helps because more shares are bought when prices are lower and fewer when the prices are higher.

The KEY to all of this is to look at your accounts/positions and be comfortable owing what you do. Then it's easier to roll with the punches.

[CRCRFT78]

Ok so here is where the mental part of investing comes into play and tricked me.

I was thinking of adding a new position but also wondered if I should add to KMI & CAT because they were in the red. With the gains I've incurred already I didn't think it was feasible to add 5, 10, or 15 shares here and there to positions already held. Spending that amount on one stock would get me more shares (almost 100+ in T), giving me a higher dividend amount, and eventually getting me more shares at a faster rate. Mentally tricking me into believing I got a better value with my purchase just because I would be looking at a bigger number of shares.

Although KMI & CAT are in the red, I know this is a long-term investment with plenty of time to recover (I hope). Thinking about adding 100+ shares of T kept me from looking at the big picture and considering other options.

Thank you to Greg and Trey, not for suggesting what I should do but for giving me another perspective on how to invest and think about investing.

[GregWeld]

Originally Posted by GregWeld

Always hardest to put money into the bleeders... but that's what you do if you still think the company is solid - that the dividend is solid - and if you believe the share price is down for some reason other than the company is going to hell. Remember that if you simply bought the same amount of shares that you have - it's only going to cut your loss a little. That would be called "doubling down".

In your case - let's take KMI:

You have 31 shares @ $41.35 per share cost basis. So if you bought 31 more shares at todays price of $29.63 --- your new cost basis would be 62 shares @ $35.49 per share. That is closer to where it's trading - but not really close enough for "me"... If it was me I'd want to get my share price down to maybe $32 ish. That way it has less to recover before I'm made whole - or I take a loss and turn it into a gain. So I might buy 100 shares of it. Your position would then be 131 shares @ $32.47

Note that the close of KMI today was it at $31.79


Now you see how this can SOMETIMES work out.